(Since April is Financial Literacy Month, a number of articles will be devoted to more educational topics. This is Part IV in a four-part series about how understanding economic cycles could inform your financial decisions. Part I is Understanding economic cycles: An introduction. Part II is Recognizing economic seasons: recovery and growth. Part III is The fall and winter seasons of the economic cycle.)
In the first three parts of this series, you saw how the economy moves in cycles of seven to 10 years, and how each cycle can be broken down into four phases which correspond closely to the seasons of nature. We also looked at some of the telltale signs of economic activity that can help us recognize where we are in the cycle.
You may be thinking, “That’s all interesting, but how can I apply that knowledge to my personal financial life?” Let’s start by decapitating the elephant in the room — market-timing. Market-timing is a fool’s game. However, most of the time market-timing refers to trying to find the high point in the market to sell high. It is true: Nobody is able to tell when a market has reached its peak.